It is the ambition of many people to run their own business. Some may have been made redundant and find themselves with free time and financial resources. Others make the decision to start up in business to be more independent and obtain the full financial reward for their efforts.
Whatever the reason, a number of dangers exist. Probably the greatest concern is the possibility of business failure.
In order to make your business a success there are a number of key factors which should be considered:
commitment - starting a business is demanding. Determination and enthusiasm are essential
skills - you will need managerial, financial, technical and marketing skills. If you do not have these skills personally, they can be found in a partner or employee, or acquired through training
your product or service should have a proven or tested market, but must not conflict with the patent or rights of an existing business.
In addition to these general considerations there are a number of more specific matters.
The business plan
The business plan is the key to success. If you need finance, no bank manager will lend money without a sensible plan.
Your plan should provide a thorough examination of the way in which the business will commence and develop. It should describe the business, product or service, market, mode of operation, capital requirements and projected financial results.
There are three common types of business structure:
This is the simplest form of business since it can be established without legal formality. However, the business of a sole trader is not distinguished from the proprietor's personal affairs.
A partnership is similar in nature to a sole trader but because more people are involved it is advisable to draw up a written agreement and for all partners to be aware of the terms of the partnership. Again the business and personal affairs of the partners are not legally separate. A further possibility is to use what is known as a Limited Liability Partnership (LLP).
The business affairs are separate from the personal affairs of the owners, but there are legal regulations to comply with.
The appropriate structure will depend on a number of factors, including consideration of taxation implications, the legal entity, ownership and liability.
There are minimum requirements for the contents of business stationery which will depend on the type of business structure.
Books and records
All businesses need to keep records. They can be maintained by hand or may be computerised but should contain details of payments, receipts, credit purchases and sales, assets and liabilities. If you are considering purchasing a computer to maintain your records, obtain professional advice.
The books and records are used to produce the accounts. If the records are well kept it will be easier to put together the accounts. Accounts must be prepared for HMRC and if a company is formed there are strict legal requirements as to their format.
A company and a LLP may need to have an audit and will need to make the accounts public by filing them at Companies House within a strict time limit.
When starting in business, taxation aspects must be considered.
Taxation on profits
The type and rate of taxation will depend on the form of business structure. However, the taxable profit will normally differ from the profit shown in the accounts due to certain expenses which are not allowed for tax purposes and the timing of some tax allowances.
National insurance (NI)
The rates of NI contributions are generally lower for a sole trader or partnership than for a director of a company but the entitlements can also differ. But in a company, it may be possible to avoid NI by paying dividends rather than salary.
Value added tax (VAT)
Correctly accounting for VAT is an essential part of any business and neglect may result in a significant loss.
When starting a business you should consider the need to register for VAT. If the value of your taxable sales or services exceeds the registration limit you will be obliged to register.
Expect a visit from HMRC within eighteen months of registration. This inspection of your records ensures VAT is being properly accounted for.
For the business to get off the ground or to enable expansion, it may be necessary to employ staff.
It is the employer's responsibility to deduct income tax and national insurance and to account for student loan deductions. The balance must then be paid over to HMRC. Payroll records should be carefully maintained.
You will also need to be familiar with employment law.
There are many pitfalls to be avoided in choosing a property. Consideration should be given to the following:
suitability for the purpose
compliance with legal regulations
physical restrictions such as access.
Comprehensive insurance for business motor vehicles and employer's liability insurance are a legal requirement. Other types of insurance such as public liability, consequential loss, business assets, Keyman and bad debts should be considered.
Putting money into a pension scheme can be a very attractive way of saving for retirement because of the favourable tax rules. Many companies have to provide access for their employees to a stakeholder pension.
How We Can Help
Whilst some generalisation can be made about starting up a business, it is always necessary to tailor the strategy to fit your situation. Any plan must take account of your circumstances and aspirations.
Whilst business success can never be guaranteed, professional advice can help to avoid some of the problems which befall new businesses.
We would welcome the opportunity to assist you in formulating a strategy suitable for your own requirements. We can also provide key services such as bookkeeping, management accounts, VAT return and payroll preparation at an early stage.
Berics Accounting offer a range of accounting services designed to meet the needs of your business. To find out how Berics can help you and your business achieve more, contact us.
© Berics Ltd 2015. All rights reserved. The document provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Never rely exclusively on our standard answers and general content and always do your own specific research. Always have the entire facts and all documents to hand before making any decision.